Transaero, Russia's biggest private airline files for bankruptcy

Russian Prime Minister Dmitry Medvedev has given the green light to begin bankruptcy proceedings for Transaero airlines, according to sources cited by online newspaper Gazeta.ru. Negotiations on a takeover of Russia's second-biggest carrier by Aeroflot have been deadlocked. According to sources, Aeroflot took a hard line refusing the Transaero consolidation.

“The process has taken the toughest turn,” the media cites a federal official present at the meeting as saying. "The bankruptcy will proceed according to Russian law,” he added.

The technical details of the bankruptcy procedure are currently being worked out, another source told the newspaper.

"There are two considerations: first, who will inherit Transaero's [$4 billion - Ed.] debts and how much of them, second, how it will affect the airline's smaller creditors, the passengers and airline employees," the source said.

According to the Russian Interfax news agency, all the negotiators have acknowledged bankruptcy as the only possible way out. A source close to the deal told Interfax there are three reasons for that.

First, the airline's shareholders have not been able to consolidate 75 percent plus one share that were expected to be transferred to Aeroflot. Secondly, Transaero creditors refused a debt restructuring model, proposed by Sberbank that is overseeing the deal. An the final reason was the Russian Ministry of Finance’s reluctance to give state guarantees of 85 billion rubles ($1.3 billion) for the restructuring of Transaero, which was promised in the early stages of negotiations.

The banks are opposed to the bankruptcy, but Aeroflot says they should have better assessed the risk when they gave loans to Transaero. According to Aeroflot, the airline had an extremely risky strategy in staying afloat.

Transaero is in such financial straits that it can’t refuel its planes, which is now done by Aeroflot. It said it would stop refueling Transaero planes on September 30, but First Deputy Prime Minister Igor Shuvalov asked Aeroflot to move the deadline to midnight October 2, Russian business media RBC reported.

Shuvalov has promised the government would help the 10,000 Transaero employees who may lose their jobs as well as passengers that had pre-purchased tickets.

At the beginning of September, Aeroflot said it intended to acquire a 75 percent stake in Transaero, which has about a $4 billion debt. Aeroflot's main shareholder is the Russian state, which owns 51 percent stake in the carrier.